Naturally in reading through through Leff's Swindling and Selling the first thing I thought of is the master swindler himself Bernie Madoff. Vanity Fair did a series of interesting articles on the debacle, one of which can be read here and which presents, in no uncertain terms, a portrait of a "powerful conman." VF and most other major publications have devoted many inches to figuring out why a man would possibly build himself up such a perilous card tower (and how the SEC failed to catch on). I am more concerned, at least in the context of our class, with how he pulled the swindle off for so long. Leff suggests that a "device" is critical to public schemes, absent the benefit of covert action (and the implicit trust of the mark that the covert operations will result in the promised returns). Ponzi's (the actual Ponzi) device was currency coupons, which didn't work. Bernie (our Ponzi) used -- his reputation? The trust of his community? From a paragraph in the VF article:

"I would hear my friends in Aspen, Colorado, the affluent resort town where I live, gloat about the kindly Jewish uncle, the financial genius, who didn’t just keep their money safe but paid dividends, while everyone else’s portfolio plummeted by 40 percent. “Bernie’s gone to cash,” one said. “Bernie’s in Treasury bills,” said another. “Thank God for Bernie!” said a third."

I understand how once the con started, and trust grew, and celebrities and heiresses got involved, everyone wanted to invest with the 'financial genius' but that still doesn't explain how it started, what his genius device was. Hopefully today's class will shed a little light.

-- AerinMiller - 04 Mar 2010

Originally, Madoff actually did have a legitimate "genius device": He was one of the first people to sucessfully use computers to trade stocks. He had a very successful legitimate business that gave him the air of genius. He also had his father-in-law funneling investors to him. Once the word of mouth spread, then he had enough money to maintain his Ponzi scheme. There is a pervasive belief that the stock market can be figured out, if only someone is smart enough to do it. Most smart people knew that something was fishy but they didn't care as long as the returns were there on paper. People thought that Madoff was the guy who had figured it out, just like Ponzi. There was nothing all that remarkable about Madoff's scheme. He just had powerful friends that allowed him to keep running it without interference. -- JohnAlbanese - 04 Mar 2010